After reading about the debate between James Altucher and Michael "Mish" Shedlock, I decided it was time to start a blog and expand my network of people I can argue with.
In my opinion, watching two investment advisors go at it over the future of the economy as if they were fighting on VH1 for one of Flavor Flav's clocks - is awesome.
The Story
May 28, 2010 - James Altucher, President of Formula Capital, expressed his bullish sentiment to techticker, claiming that the economy is headed for a "check mark" recovery (as opposed to a V-shaped recovery).
The key points from the techticker article:
- "-- The job market is improving. “We've seen temp workers go up for seven months in a row," the fastest pace since 2004. Average pay and hours worked are up and the U.S. added 290,000 jobs last month, the biggest jump in four years. Plus, he notes, “jobs in self-employed positions and start-up businesses have jumped by 1.9 million in the past four months."
- -- Car sales are up by 25% in April compared to a year ago. “How did Toyota have 27% year over year car sales increase?"
- -- Pending home sale are up 21% year over year."
He does make a valid point that the economy is recovering quickly; however, I do not see how his evidence shows it to be very likely that the upward momentum will continue past or close to the highs from 2007.
My simple reasoning is that the highs of 2007 were fueled by credit - credit which was based upon the promise of continued growth. At some point, the difference between the growth that was actually feasible and the growth that was projected became very large - however, this was masked by the presence of more credit. For example, if I keep taking out more credit cards to buy more than my income could justify, it may be a while before my spending spree runs out if people keep lending me money. Since the high's of 2007 were fueled by such assumptions, I believe it will take a while before the economy legitimately hits those points again. To go back to the credit card metaphor, my income will need to catch up with my spending.
And now the spitting in the face ...
On June 3, 2010, blogger and investment advisor, Mike "Mish" Shedlock wrote that Altucher is not only wrong, but is "completely wacko."
He follows up with charts showing that although there is very high percentage growth recently, the actual numbers are still very low. I think he brings up a great point - it is very different to look at percentage growth as opposed to nominal growth. For example, if the DOW went down to $1 and then went up to $2, there would be a 100% increase in the DOW! Unfortunately, that fact would provide little evidence that the DOW would continue to rise.
June 4, 2010 - Altucher Shoots Back! Oh Snap!
Altucher blogs at the wall street journal justifying his prior claims and indirectly saying Mish is an asshole for calling him a wacko. Altucher clearly has a ton of knowledge, but again, his reasoning is based on the fact that the economy is in way better shape than it was about a year ago. Fair point but his rebuttal seems a bit watered down to his initial claim of the economy reaching new highs.
I am looking forward to a response from "Mish." Now I know how people must feel while waiting for the next episode of the Bachelor.
For a good introduction to macroeconomic theory, I strongly recommend Concise Guide to Macroeconomics: What Managers, Executives, and Students Need to Know
It is very common for the intuition behind macroeconomic theories to get lost after students are bombarded with a slew of equations. This book does not fall into this trap.
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